Not everyone can afford to pay for a remodeling project in full. Many homeowners borrow money to complete a remodeling project. They usually use a home equity or personal loan. How to choose the best option for your remodeling project.
Home equity loans have many benefits
You may be right if you have a house. Home equity loan allows you to borrow money against the value of your home.
Fixed and low interest rates
The terms and interest rates of these secured loans are usually fair. Home equity loans are usually for 10-30 years. This allows you to customize your loan according to your monthly budget and needs. Home equity loans have fixed rates of interest, monthly payments and repayment timelines.
Simple application process
Online, you can compare and apply for home-equity loans. However, you will need to complete an appraisal or other steps before you are able to move forward.
Tax benefits
You may also be able deduct the interest on your home equity loan if you itemize. The IRS states that you cannot deduct the home equity interest you pay if the proceeds of your home equity loan are used for personal expenses. However, you can still claim the interest if the proceeds are used to “buy, construct, or substantially enhance” your home.
You can also find out more about Cons
Home equity loans have few downsides, but you should be aware of a few.
You might not qualify
You may not qualify for this loan if you don’t have enough equity in your house. According to Federal Trade Commission you can only borrow 85 percent of the value of your home through a home equity loan and a first mortgage. If your home is valued at $200,000, then you can only borrow $170,000 between a home equity loan and a first mortgage.
Possible foreclosure
If you don’t pay your home equity loans, you may lose your home to foreclosure.
Personal loans: pros and cons
Home renovations are often financed with personal loans for several reasons.
Fixed interest rates and payments
They have fixed monthly payments, and an interest rate that never changes.
You home is not collateral
Personal loans do not require that you put your home up as collateral. Therefore, the amount of money you can borrow does not depend on your home equity. They are a good choice if you have little equity in your house but need money.
Reduce red tape
There are fewer hoops for you to jump through to apply for a personal loan. There’s less paperwork and you don’t need to prove your home’s value.
You can also find out more about Cons
Personal loans are easier to apply for and manage, but there are a few major drawbacks.
Interest is not deductible
If you use a personal loan to remodel your home, the interest will not be deductible on your tax return.
Interest rates on loans and mortgages are increasing
Since personal loans are unsecured, they may have slightly higher rates of interest than home equity loans.
What is the best option for you?
Home equity loans or personal loan are both good options for home remodeling. Both have fixed rates of interest and monthly payments that you can plan for. They could help you finance your home remodeling project.
There are many factors to consider. Consider, for example:
- What is the equity in your house?
- Want to use your house as collateral?
- How much money do you need?
Be sure to consider all fees associated with both personal loans and home equity loans. Some lenders offer loans with no application fees, hidden fees or origination fees. However, these products are usually only available to those with excellent or good credit. 5 Personal loan Fees That You Should Never Pay
It’s simple to compare personal and home equity loan terms online. You can compare different loan options on some websites, such as LendingTree.
Compare all loan options, including their interest rates, fees and repayment schedules. Also, consider the amount of money you will need to pay each month. You could get your project running quickly with enough research.
